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Q:
The ________ limited the fluctuations of European Union members' currencies within a specified trading range.
A) exchange rate mechanism
B) special drawing right
C) currency board
D) free float system
Q:
A ________ is a monetary regime that is based on an explicit commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate.
A) currency option
B) currency board
C) currency speculation
D) currency arbitrage
Q:
The ________ was an agreement among the G7 nations that the dollar was appropriately valued and that they would intervene in currency markets to maintain its current market value.
A) Bretton Woods Agreement
B) Smithsonian Agreement
C) Plaza Accord
D) Louvre Accord
Q:
The ________ was a 1985 agreement among the G5 nations to act together in forcing down the value of the U.S. dollar.
A) Bretton Woods Agreement
B) Smithsonian Agreement
C) Plaza Accord
D) Louvre Accord
Q:
Today's international monetary system is considered to be a ________ system.
A) fixed exchange
B) free float
C) managed float
D) linked exchange rate
Q:
A system in which currencies float against one another, with governments intervening to stabilize their currencies at particular target exchange rates is called a ________.
A) managed float system
B) linked exchange rate system
C) free float system
D) fixed exchange-rate system
Q:
IMF members formalized the existing system of floating exchange rates as the new international monetary system by drafting the so-called ________.
A) Bretton Woods Agreement
B) Smithsonian Agreement
C) Plaza Accord
D) Jamaica Agreement
Q:
Explain the differences between a monetary policy and a fiscal policy, and discuss why the IMF was established.
Q:
Describe the most important features of the international monetary system created by the Bretton Woods Agreement.
Q:
Briefly describe the gold standard, its advantages, and why it collapsed.
Q:
The European monetary system is still in practice today.
Q:
To provide funding for countries' efforts toward economic development, the Bretton Woods Agreement created the International Bank for Reconstruction and Development.
Q:
The Bretton Woods Agreement was an accord among nations to create a new international monetary system based on the value of the U.S. dollar.
Q:
The primary disadvantage of the gold standard was that it increased exchange-rate risk.
Q:
The international monetary system created by the Bretton Woods Agreement collapsed because ________.
A) of its heavy dependence on the stability of the dollar
B) it was not accepted by a majority of the world's nations
C) it did not have the funds necessary for its functioning
D) it favored only the developed countries and was of no help to struggling nations
Q:
The ________ is an IMF asset whose value is based on a weighted basket of four currencies, including the U.S. dollar, European Union euro, Japanese yen, and British pound.
A) special drawing right
B) gold standard
C) Eurobond
D) currency board
Q:
Which of the following was created by the Bretton Woods Agreement to enforce the rules of the international monetary system?
A) International Bank for Reconstruction and Development
B) International Capital Market
C) International Monetary Fund
D) World Bank
Q:
The World Bank was created by the ________.
A) Jamaica Agreement
B) Bretton Woods Agreement
C) Smithsonian Agreement
D) Plaza Accord
Q:
An economic condition in which a trade deficit causes a permanent negative shift in a country's balance of payments is called ________.
A) revaluation
B) statistical discrepancy
C) the Fisher effect
D) fundamental disequilibrium
Q:
Which of the following features did Bretton Woods Agreement incorporate in the international monetary system based on the U.S. dollar?
A) floating exchange rates
B) trade imbalance corrections
C) an enforcement mechanism
D) a strict ban on devaluation
Q:
Which of the following created a new international monetary system based on the value of the U.S. dollar?
A) Plaza Accord
B) Bretton Woods Agreement
C) Louvre Accord
D) Jamaica Agreement
Q:
Which of the following was a disadvantage of using gold as a medium of exchange in international trade?
A) The weight of gold made transporting it expensive.
B) Gold was not in high demand.
C) The gold standard imposed lenient monetary policies on countries that participated in the system.
D) The gold standard increased the risk in exchange rates as it maintained highly flexible exchange rates between currencies.
Q:
Which of the following was an advantage of the gold standard?
A) It retained trade imbalances.
B) It abolished monetary policies on all countries.
C) It reduced the risk in exchange rates.
D) It increased exchange-rate fluctuations.
Q:
The calculation of each currency's par value under the gold standard was based on the concept of ________.
A) earnings per share
B) interbank interest rates
C) purchasing power parity
D) inflation rates
Q:
Under the gold standard, if the U.S. dollar was fixed at $30/oz of gold and Japan was fixed at ¥75/oz of gold, what would be the Yen/dollar exchange rate?
A) ¥2.50/$
B) $2.50/Â¥
C) ¥0.40/$
D) ¥2250/$
Q:
The value of a currency expressed in terms of gold is called its ________.
A) book value
B) net asset value
C) par value
D) carrying value
Q:
________ was the first nation to implement the gold standard in the early 1700s.
A) The United States
B) Britain
C) France
D) Japan
Q:
The gold standard is a ________ because it secured nations' currencies to the value of gold.
A) floating exchange-rate system
B) fixed exchange-rate system
C) linked exchange rate system
D) free float system
Q:
In the earliest days of international trade, ________ was the internationally accepted currency for payment of goods and services.
A) British pound
B) U.S. dollar
C) silver
D) gold
Q:
The ________ is the collection of agreements and institutions that govern exchange rates.
A) Bretton Woods Agreement
B) Plaza Accord
C) international monetary system
D) international bond market
Q:
Compare and contrast the two main techniques for forecasting exchange rates.
Q:
Explain the impact of added costs, trade barriers, and investor psychology on the ability of purchasing power parity (PPP) to predict exchange rates accurately.
Q:
Discuss the challenges involved in forecasting exchange rates.
Q:
Differentiate between efficient and inefficient market views and discuss the implications of the two schools of thought for companies.
Q:
Why do managers prefer that movements in exchange rates be predictable? How does the Big Mac index help determine whether a currency is overvalued or undervalued, and what are its drawbacks?
Q:
The IMF asset whose value is based on a "weighted basket" of four currencies is called a special drawing right.
Q:
The value of a currency expressed in dollars is called its par value.
Q:
Technical analysis employs charts of past trends in currency prices and other factors to forecast exchange rates.
Q:
Fundamental analyses used for forecasting exchange rates estimate the timing, magnitude, and direction of future exchange rate changes.
Q:
According to the efficient market view for forecasting exchange rates, forward exchange rates are perfect predictors of future exchange rates.
Q:
A market is efficient if the prices of financial instruments quickly reflect new public information made available to traders.
Q:
Investor confidence in the value of a currency plays an important role in determining its exchange rate.
Q:
According to Fisher effect, real interest rate is the sum of the nominal interest rate and the expected rate of inflation over a specific period.
Q:
Purchasing power parity does not hold for single products, it is meaningful only when applied to a basket of goods.
Q:
It is the nature of arbitrage to even out excessive fluctuation by destroying its own profitability.
Q:
If the law of one price is applied and upheld, an arbitrage opportunity arises.
Q:
Sam's mentor is excited about the wheat prices in France and the U.S. because he sees an opportunity to buy wheat in the U.S. and sell it in France, which is known as a(n) ________.
A) exchange rate profit
B) arbitrage opportunity
C) violation of purchasing power parity
D) violation of the law of one price
Q:
It the actual euro/dollar exchange rate on currency markets is €1.2/$, and a kilogram of wheat still costs $1 in the U.S. and €1.5 in France, Sam also knows that the price of a kilogram of wheat in France is ________.
A) $1.25
B) $.80
C) €.80
D) €1.2
Q:
Suppose Sam then noticed that the actual euro/dollar exchange rate on currency markets is €1.2/$, and that a kilogram of wheat still costs $1 in the U.S. and €1.5 in France. Sam then knows that ________.
A) the expected exchange rate between the euro and the dollar is €1.5/$
B) wheat is priced higher in France
C) wheat is priced lower in France
D) an arbitrage opportunity does not exist in the international wheat market
Q:
Sam has been studying the price of wheat across markets. If a kilogram of wheat costs €1.5 in France and $1 in the United States, the law of one price would tell us ________.
A) the expected exchange rate between the euro and the dollar is €1.5/$
B) wheat is over priced in France
C) wheat is under priced in France
D) an arbitrage opportunity exists in the international wheat market
Q:
In an attempt to raise money in Country B, Color-Me-Green was quoted an interest rate of 14 percent by a local bank. This quoted rate is called the ________ rate.A) crossB) artificialC) nominalD) exchange
Q:
In Country B, Color-Me-Green is faced with a tight labor market and a low unemployment rate. This low unemployment rate will most likely result in ________.
A) lower interest rates
B) lower wages for workers
C) higher purchasing power
D) higher rate of inflation
Q:
Suppose Country A has a currency called the Pulse (P). At the beginning of the year, the exchange rate between the Pulse and the U.S. dollar was P150/$. The inflation rate in Country A is running at an annual rate of 250 percent, whereas inflation in the U.S. is running at 2 percent. Which of the following would most likely be the new exchange rate that Color-Me-Green can expect at the end of the year?
A) P525/$
B) P514.70/$
C) P43.71/$
D) $43.71/P
Q:
An exchange rate system in which the exchange rate for converting one currency into another is set by international governmental agreement is called a ________ system.A) floating exchange-rateB) fixed exchange-rateC) cross rateD) spot rate
Q:
Which of the following is true of the techniques used for forecasting exchange rates?
A) Very few forecasts are completely accurate because of unexpected events that occur throughout the forecast period.
B) The human element involved in forecasting exchange rates perfect the techniques.
C) Fundamental analysts estimate the timing, magnitude, and direction of future exchange rate changes using charts and models of past data trends.
D) Technical analysts often consider a country's balance-of-payments situation while forecasting exchange rates.
Q:
The efficient market view holds that ________.
A) companies can search for new pieces of information to improve forecasting
B) forward exchange rates provide the least accurate forecasts of future exchange rates
C) companies must spend time and money collecting and examining information believed to affect future exchange rates
D) prices of financial instruments reflect all publicly available information at any given time
Q:
According to the efficient market view, future exchange rates are most accurately forecasted by ________.
A) forward exchange rates
B) cross rate
C) interbank interest rates
D) buy rate
Q:
Which of the following is a reason for the failure of PPP to predict exchange rates accurately?
A) PPP takes transportation costs into consideration while predicting exchange rates.
B) PPP assumes no barriers to international trade while predicting exchange rates.
C) PPP considers the role of people's confidence and beliefs about a nation's economy in exchange rate predictions.
D) PPP does not take into account the effect of the market forces of demand and supply.
Q:
Purchasing power parity is better at predicting ________ exchange rates.
A) cross
B) spot
C) short-term
D) long-term
Q:
The principle that a difference in nominal interest rates supported by two countries' currencies will cause an equal but opposite change in their spot exchange rates is called the ________.
A) Guidotti-Greenspan rule
B) international Fisher effect
C) comparative advantage theory
D) efficient market view principle
Q:
If money were free from all controls when transferred internationally, the real rate of interest would ________.
A) be the same in all countries
B) be the same as the inflation rate
C) create arbitrage opportunities across countries
D) create arbitrage opportunities in developed countries
Q:
Which of the following represents the Fisher effect?
A) Cross Rate = Real Interest Rate + Nominal Interest Rate
B) Real Interest Rate = Nominal Interest Rate + Spot Rate
C) Nominal Interest Rate = Real Interest Rate + Inflation Rate
D) Real Interest Rate = Nominal Interest Rate + Unemployment Rate
Q:
The principle that nominal interest rate is the sum of the real interest rate and the expected rate of inflation over a specific period of time is called ________.
A) the law of one price
B) purchasing power parity
C) the comparative advantage theory
D) the Fisher effect
Q:
A government buys its own securities on the open market when the ________.
A) inflation rate in the country is high
B) inflation rate in the country is low
C) interest rates in the country are high
D) interest rates in the country are low
Q:
Which of the following talks about the relative ability of two countries' currencies to buy the same "basket" of goods in those two countries?
A) the Fisher effect
B) the law of one price
C) purchasing power parity
D) cross rates
Q:
A(n) ________ opportunity helps in buying a product in one country and selling it in another country where it has a higher value.
A) barter
B) buyback
C) countertrade
D) arbitrage
Q:
When the law of one price is violated, a(n) ________ opportunity arises.
A) dumping
B) countertrade
C) arbitrage
D) devaluation
Q:
If a kilogram of coal costs €1.5 in Germany and $1 in the United States, the law of one price calculates the expected exchange rate between the euro and the dollar to be ________.
A) €0.67/$
B) €1.5/$
C) $1.67/€
D) $0.12/€
Q:
Which of the following stipulates that an identical product must have an identical price in all countries when the price is expressed in a common currency?
A) purchasing power parity
B) the law of one price
C) the comparative advantage theory
D) the efficient market view
Q:
Predictable exchange rates reduce the need for ________.
A) currency conversion
B) currency swap
C) currency depreciation
D) currency hedging
Q:
Which of the following lowers the price of a country's exports on world markets and increases the price of its imports?
A) revaluation
B) devaluation
C) currency hedging
D) currency arbitrage
Q:
The intentional raising of the value of a currency by a nation's government is called ________.
A) revaluation
B) securitization
C) fundamental disequilibrium
D) currency hedging
Q:
Devaluation of a nation's currency ________.
A) gives foreign companies in the country an edge over domestic companies
B) leads to a decline in the supply of goods and services
C) increases the price of a country's imports
D) increases consumers' buying power
Q:
Explain the concept of devaluation, and explain the effect devaluation has on the price of a country's imports. Discuss how international companies can adjust to a weak currency.
Q:
Explain how movement in a currency's exchange rate affects the activities of both domestic and international companies. Discuss how companies can export successfully despite having a strong currency.
Q:
Discuss the role of business confidence and psychology in currency values.
Q:
Explain how exchange rates adjust to inflation.
Q:
Briefly describe how exchange rates influence business activities.
Q:
Inflation in an economy can be controlled by lowering the interest rates.
Q:
Low unemployment rates can lead to higher inflation.